Corporate Sustainability Reporting Directive (“CSRD”) entered into force on 5th January 2023. This directive updates the rules relating to the environmental and social information that companies are required to report (replacing the EU’s Non-Financial Reporting Directive (“NFRD”)). The goal is to close the gap between financial and sustainability reporting and data. Companies subject to CSRD are required to report in line with the European Sustainability Reporting Standards (“ESRS”). The ESRS were developed by an independent body bringing together different stakeholders called the European Financial Reporting Advisory Group (“EFRAG”).
CSRD is looming and the scope is wide.
Across the next 4 years, some 50,000 companies will find themselves in scope for these new reporting requirements, and this doesn’t just apply to listed EU companies. It captures private companies and non-EU companies who generate a certain level of revenue from the EU.
Two key updates were released during Q3 2024.
On 26th July 2024, EFRAG issued new explanations of the ESRS, which were included in the Compilation of Explanations. The updates are grouped by category (i.e., cross-cutting, environmental, social and governance) and the document also provides links to other questions that have been answered elsewhere. The explanations cover each of the ESRS, providing greater clarity on general requirements and structuring, as well as answers to specific questions on environmental reporting including, climate change, pollution, and biodiversity. The explanations also provide clarity on social reporting involving the company’s own work force and policies relating to value chain workers. The provided explanations on governance ESRS relate to business conduct. The document addresses many of the questions that corporates will have as they begin preparing for their first report.
FAQs
On 7th August 2024, the EU Commission announced the publication of a new set of FAQs aimed at supporting those implementing the reporting requirements of CSRD. The FAQs were released following feedback from corporates and aim to provide greater clarity on the scope, including exemptions, as well as addressing practical elements such as language requirements, digitisation, publication and supervision, and the CSRD’s connection to SFDR. The FAQs also cover which sets of ESRS companies should use and how to take into account estimates where companies don’t have the full value chain information. The Commission’s objective in releasing the FAQs was to reduce the administrative burden associated with sustainability reporting, and they may update the document as further feedback is received.
Both corporates and asset managers should be aware of the requirements of CSRD. The first wave of firms that are coming in scope must start collecting data for reporting this year. Centralis can help clients by providing detailed guidance and support on the reporting process. Please contact us to see how we can help you comply with this important new regulation.
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